Tax Working Group release report: What it means for you

Newstalk ZB ,
Publish Date
Thursday, 21 February 2019, 11:01a.m.
Sir Michael Cullen chaired the group that has just released its report. (Photo / NZ Herald)

The Tax Working Group is recommending the Government implement a capital gains tax and use the money gained to lower the personal tax rate and tax polluters.

The capital gains tax (CGT) recommended would cover assets such as land, shares, investment properties, business assets and intellectual property.

Any gains on the sale of these assets would be added to the seller's overall yearly income and be taxed normally at realization – meaning a CGT would only take effect when it becomes law.

Other assets, such as the family home, cars, boats and art, would be exempt from a CGT.

The group's chair, Sir Michael Cullen – former Labour Party Finance Minister – said New Zealand's tax system had many strengths – "but there is a clear weakness caused by our inconsistent treatment of capital gains".

He expected the capital gains tax the group recommended would raise roughly $8 billion over the first five years.

That revenue would ramp up in the years after that.

"Where there is capital income, is where the capital gains tax would lie," Cullen said.

The decision to make Cullen's CGT law now rests with the Government, which will reveal its plan in April.

ZB Political Editor Barry Soper says that the group has brought a fight for the Government. 

"The Capital Gains Tax is broad - the family home is saved, but everything else is up for grabs."

He says they will attract the top tax bracket of 33 per cent, which Deputy Prime Minister Winston Peters won't like. 

Soper told Kerre McIvor that this is a pretty broad brush. 

How it will go down will be mixed, especially when the chair of the group Michael Cullen is apparently not a fan. 

"In his seventeen years in finance, nine of those as Minister, he said he never once advocated for a Capital Gains Tax, and he said draw your own conclusion from that. Three of the 10 on the panel were opposed to a Capital Gains Tax, and it's clear that Michael Cullen was one of them." 

Soper says it will be the biggest electoral risk a party has taken going into an election. 

"They are being very brave going into an election advocating for a CGT for a third time." 

Finance Minister Grant Robertson says the group's findings shouldn't surprise anyone.

"Those who've been following it would be very well aware of the direction of travel and what members of the group have been able to agree on." 

He says the Government is not bound the accept all of the recommendations, and they will seek technical advice.

Revenue Minister Stuart Nash said the report found there was some unfairness in New Zealand's tax system that the Government needed to address.

Cullen pointed out that was highly unlikely that all the Tax Working Group's recommendations would be implemented.

He said that the group had presented the Government with choices and options, rather than a "ridged blueprint".

With the $8 billion raised from the CGT, the Government would have a number of other options taxation – one being around the taxation of personal income.

If the Government chose to go down this route, Cullen recommended increasing the bottom taxation threshold from $14,000 a year to between $20,000 and $22,500.

"This would reduce income inequality, benefit all full-time workers and support those transiting into work," the report said.

This would amount to an extra $15-$16 a week – "which doesn't sound like much, but it's significant for people in a low income," Cullen said.

The report also said the Government could use taxes to protect the environment, by slapping a tax on harmful environmental practices – such as pollution.

Cullen said the group "very strongly" supported a tax on pollution and water extraction.

He also said Government could strengthen the Emissions Trading Scheme, to make it behave more like a carbon tax.

Cullen said there may be a fear the CGT could encourage less investment.

But he said there was no relationship between a CGT and levels of investment or the lowering of productivity.

"It's a fear that's not backed up by the imperial evidence."

The Government has said that if it does decide to impose Cullen's CGT, it would pass legislation before the next election.

Cullen said the Government would need to dedicate a lot of resources to make sure it could achieve this timeline and said international experts would likely have to be brought in.


Overnight Talk

Overnight Talk

12a.m. - 5a.m.